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THIS IS NOT A TIP. I AM NOT A TIPSTER. PLEASE DO YOUR OWN RESEARCH. PLEASE READ THE DISCLAIMER ON THE HOME PAGE OF MY WEBSITES.
Hopefully this will be short and sweet. You may have seen on my ‘News’ bit on the Homepage or on Twitter that I sliced off a chunk of my CRST holding at around 440p early this morning. As usual, I made the decision in the ‘cold light of day’ (ok, it was dark) last night after the markets were well and truly shut, and it was partly driven by Chart based timing as I will outline below. I have held CRST for about 2 years having bought my first chunk just after the IPO - because it looked flippin’ cheap. I have quite a lot of Shares and Spreadbet positions and I chopped off about a fifth of my holding - banking a Profit of over 62% and there were Divvys on top of this as well - not too bad. Hopefully I can shift some more of the Holding with similar banked profits or preferably better !!
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A Conundrum of Logic
If you thought the last chunk was weird, wait for this bit. Hopefully you will have understood from earlier bits of this WheelieBlog Series that my overall approach is to have about 60% of my Overall Exposure in Normal Shares and then to have the remaining 40% roughly in Spreadbet ’Virtual’ Exposure. This then makes me think. Why don’t I just forget about owning any Shares at all and just go 100% of Exposure as a Spreadbet ‘Virtual’ Portfolio? If I did this, I could up my Exposure probably by 100% - i.e. I could have DOUBLE the Exposure that I have now. Obviously this would mean that any actual £s return I make in a Year would be doubled - and of course any Loss would be doubled. It has a certain appeal I have to admit (not the Loss bit obviously.) Restrictions on opening Accounts with igIndex
I suspect that most Spreadbetting Companies have similar qualifying criteria for an Account. You need to be over 18 to apply and they will put you through a Credit Vetting procedure. If you are in Full Time Employment it is probably a lot easier to get an Account than if you are not Employed; in the latter case you may need to provide proof of Assets or something - I do not know how this is handled. If you are deemed to be an inexperienced Investor, they will only let you have a ‘Limited Risk’ account - this means that you will have Guaranteed Stoplosses on every trade. This might be ok for some people, but for the way I do things, it would not be very helpful. If you are ‘Experienced’ (I think you need to indicate that you have been Investing in Shares for some years) then you can have a ‘Normal’ Account, which to my mind is much more useful. How to deal with Nasty Bear Markets
Due to the nature of the Leverage in Spreadbets, when Markets go a bit nasty, the Cash Buffer in your Account can evaporate very fast - it is quite scary and this is why you must control your Exposure at all times. I have found that by building up my Spreadbet Portfolio slowly over time, I have learnt how the ‘Margin’ (Deposit) and ‘Cash Buffer’ tend to move and I now always have a big Cash Buffer sat there ready. This comes with experience but it is vital to start small and learn how the whole thing works before you take larger Positions. An Unexpected Danger during the Credit Crunch
This section is a word of warning and something to be aware of. It has only happened to me once, during the Credit Crunch, but it was really very, very, unpleasant. What happened was that my Spreadbet Companies changed their Margin Rates as the turmoil in Markets occurred. It is easiest to explain this with an imaginary scenario - let’s say the Margin Requirement was 10% of my Portfolio and I had £200,000 of Exposure. This would mean that my Initial Margin Requirement was £20,000, so I had to have AT LEAST that amount of money just tied up in the Account as Margin (Deposit) to keep the Positions open. Now, let’s imagine the Spreadbet Company increased the Margin Requirement to 20% - this would mean I now needed £40,000 or they would close down some of my Positions until the Exposure fell back enough and the Cash rose enough to get back into balance. Hopefully I can keep this Blog reasonably short as I have already bashed one Blog out today and done a load of work on the next parts of that Series. The reasons for me dumping all my Telecity TCY are as follows:
Leading on from the last 2 parts of this Blog Series, I now move onto the actual mechanics of how I go about getting the Advantages of Leverage from Spreadbets whilst reducing the Risk and keeping things easy and manageable.
Long Term Portfolio Approach - ‘Mirroring’ The simple Logic is that I do a 'mirror' of my Normal ISA Share Portfolio as a Spreadbet Portfolio. Say, as an example, that I had £10k of Aviva shares, then I would 'mirror' as a Spreadbet by doing about £20 a Point (AV. price roughly 490p ish now) which would mean an Exposure of near £10k which would be like the Share position. So, I do this with all my stocks and it means that the 'Risk' is spread across them all just like in a Share Portfolio. This means I probably have as many as 35 Spreadbet Positions open at the moment. CFDs
In many ways CFDs (Contracts for Difference) are similar to both Normal Shares and Spreadbets - sort of a cross between the two - a mongrel (woof). As with Normal Shares, you pay a Commission and they are Taxed and you receive Dividends where you get the payment on the Ex Div date (like a Long Spreadbet). Like with Spreadbets, you can use to go Short, you can do it on Margin (so you get Leverage) and you do not own a Stake in the underlying Company. If you are Short, you lose the Dividend on the Ex Div date - beware. Like Normal Shares, the Buy and Sell price is exactly the same as the Normal Shares in the underlying Market. With Spreadbets the prices are very different - always wider. Introduction
I suspect this will be a Blog that gets read a fair bit - hopefully it will unravel the mysteries of using Leverage like Spreadbetting but will also show Readers how I exploit the Advantages of Leverage and minimise the Dangers - which are considerable. I had been loathe to do too much on Leverage on my website previously as I didn’t feel I should encourage 'Newbies' too much as they could get in a right flippin' mess. In the event, I reluctantly ended up shoving Robbie Burn's Spreadbet book in Wheelie's Bookshop as I thought it would be better if Readers had at least a little understanding because I get quite a few people asking me about it. Quite scary really because I think the conventional approach to Spreadbetting is extremely dangerous and the ‘teaching’ from the product providers encourages what I consider to be methods that are guaranteed to lose you money. It’s Saturday night and I am in one of those “I must write a blog, but don’t want a difficult one to write” moods - so I will just try and scribble about the methods I use to find Stocks initially, before they go through further Research. I am very much a person who thinks ahead and always want to be on the ball - it stops me feeling stressed and helps me keep nice and calm. Being stressed is bad state for successful Investing.
This planning ahead means I always want a good ‘Pipeline’ of Blogs in a pretty good state of Draft, stretching out several weeks. That way, if Life gets in the way, I can still keep a good flow of Blogs for the Website. Whenever I trip over a New Stock that might have potential, I very quickly do a sort of ‘Triage’ on it where I can rule it In or Out for further analysis in probably under 2 minutes. This process will be the subject of another Blog which I have written in Draft and will be out soon. |
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